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The second half of 2011 was a period of expanding national output, with 9/30/11 GDP posting 1.8% annualized quarter-on-quarter growth and 12/31/11 GDP expanding at a 3.0% annualized quarter-on-quarter pace. As the first half of the year was more stagnant, year-end GDP growth, on a year-over-year basis, sat at 1.6%, hardly robust, but showing positive momentum. Better second-half numbers should continue to exert upward pressure on year-on-year GDP growth for the first half of 2012. Stagnating leading economic indicators and a projected slowdown of the economy in the second half of the year, due to both the higher costs associated with the implementation of “Obamacare” and the rollback of the Bush-era tax cuts, should serve to keep GDP growth moderate. We are projecting first-quarter 2012 GDP to grow at a slightly slower 1.5% annualized rate, second-quarter GDP to rebound sharply to a 2.5% – 3.0% annualized rate, and then a slight slowdown in the second half of the year to the 2.4% – 2.7% area.

Inflation remains benign. Year-on-year growth in headline CPI, the broad basket of goods and services used by the Bureau of Labor Statistics to compute consumer prices, ended 2011 at 3% and posted a 2.9% reading in January of this year, while the same measure for the same basket of goods, only excluding the historically more volatile food and energy components, grew at a 2.2% pace by the end of 2011 and 2.3% for the 12 months ending in January of this year. More broadly, commodity prices, which generally fell over the course of 2011, started picking up again late in the year, led mostly by rising oil prices, and this trend has extended into early 2012. As the bulk of the world’s major economies are either stagnating (U.S. and Japan) or outright shrinking (the Eurozone as a whole), the future path of commodity prices will continue to be determined mainly by China’s output. China is revising downward its projection of national output to a level below 8% for the first time in a decade.

Chart source: Bloomberg as of February 29, 2012. Past performance is no guarantee of future results.

With inflation in check, the dual nature of our Central Bank’s mandate is such that the Federal Reserve is tasked with pursuing policies that promote full employment. The U.S. jobs situation is looking better, at least on the surface, as the nation’s unemployment has fallen from its peak of 10.0% in October of 2009 to 8.5% at year-end 2011 and even further to 8.3% as of the end of January 2012 (8.26% on an unrounded basis).January 2012 saw the creation of 243,000 jobs, per the Bureau of Labor Statistics’ Nonfarm Payroll Report, the highest level of monthly job creation seen since March and April 2011 and, before that, May 2010. A reslowing of the domestic economy should make job creation more difficult by the second half of 2012, a factor, along with the European financial/sovereign debt situation, that likely explains the Fed’s proclamation of sustained monetary accommodation until at least late 2014.

Below the surface, the employment situation is showing some structural difficulties. As is shown in the lower chart, between its peak in March 2007 and its relative trough in December 2009, the economy lost most than 6 million jobs among those people without a college degree. From its relative peak in February 2008 to a trough in February 2009, college degreed workers lost only 1.2 million jobs. Since these respective troughs, the economy has added 2.2 million jobs for the college degreed but only 901,000 for those workers who didn’t graduate from college. Presumably, those workers without college degrees have been employed in the manufacturing and construction industries. Manufacturing employment in the U.S. has been falling for decades, as we’ve deindustrialized the nation, shipping manufacturing jobs offshore in search of cheap labor. Construction employment had always picked up the slack, providing jobs for undereducated workers. Since its peak in April 2006, the construction industries have been working through a glut of overbuilding. Finding employment for these undereducated workers will require a resurgence of U.S.-based manufacturing, a reawakening of the construction industries, or significant and time-consuming retraining, none of which appear to be quick fixes for this structural employment issue. This proposition is likely also weighing heavily on the Fed.

Chart source: Bloomberg as of February 29, 2012. Past performance is no guarantee of future results.

Just as the data appeared to be looking better—more robust third and fourth quarter 2011 GDP, falling unemployment, etc.—the Federal Reserve’s monetary policy-making body, the Federal Open Market Committee (FOMC), announced that it would maintain an accommodative monetary policy stance—it would keep rates extremely low—until late 2014. Whether this was due to the possibility of the domestic economy reweakening or the FOMC’s fear of widespread uncertainty emanating from the Eurozone region, it is not clear, but the Fed appears to be firmly committed to keeping the front end of the yield curve at low levels for an extended period. To be sure, a more dovish set of Reserve Bank presidents have rotated into voting positions on the FOMC, so extended monetary accommodation is not a surprise. In fact, a poll released by the FOMC after its most recent meeting showed that, while most members believe that year-end 2014 will see the first increase in the Committee’s federal funds policy rate, four members don’t believe it will happen until 2015 and a further two believe it will not occur until 2016.

With the ongoing challenges to robustly create jobs and the structural difficulties in the jobs market that point toward some stagnation, perhaps the biggest reason the Fed has its foot off the monetary brake is the financial/sovereign debt situation in the Eurozone. The lower chart displays the yield the market is commanding over German debt to hold the sovereign debt of the peripheral Eurozone members: Greece, Portugal, Ireland, Italy, and Spain. The left-hand side of the chart shows what the Eurozone, operating under a single currency and as a single economic bloc, was set up to do: all of the debt of the many Eurozone nations was trading at very similar yield levels. The right-hand side of the chart, however, shows the shortcoming of a system set up with seventeen nations retaining sovereignty over fiscal policy but operating under the monetary authority of a single central bank. While it’s undeniably true that Greece, Portugal and Ireland, in particular, have large sovereign and banking debt problems, it is our contention that the problems in the Eurozone will not be solved until this dichotomy of multiple fiscal policies trying to work in concert with a single monetary authority is fixed, and, until it is, fear stemming from bad and worsening news coming out of the region will likely continue to pressure the Fed to keep rates lower for a longer period of time unless domestic inflation begins to meaningfully rise.

Chart source: Bloomberg as of February 29, 2012. Past performance is no guarantee of future results.

Between the Eurozone crisis, the prospects for a reweakening of the economy domestically, two rounds of Federal Reserve quantitative easing that pumped $2.3 trillion into the markets and the Fed’s “Operation Twist” in the second half of last year whereby the Fed sold some short-term securities in Treasury holdings and used the proceeds to buy longer-term Treasury securities, it’s no surprise that the yield curve is flat and continues to flatten. The very front-end of the curve, from overnight out to two years, directly reflects the Fed’s bringing its policy rate to a range of 0 to 25 basis points (bp) in the wake of the Lehman failure in the fall of 2008, while low and falling rates on the long end of the curve reflect fear and the impact from the twist operation. All but the 30-year part of the term structure of interest rates are at or close to their all-time lows in terms of yield, and, as stated above, the Fed is looking to maintain these rates for an extended period.

The hunt for yield in the money market space continues, as roughly $3 trillion in assets is chasing paper that matures no longer than in 13 months. Because of this, the very front-end of the curve is almost completely flat, with fed funds trading at roughly 11 bp and 1-year Treasury bills trading at roughly 16 bp. The smaller-than-usual but still meaningful pickup in yield going out to the 2- and 3-year parts of curve reflect the fact that this is a perennial underserved market—too long for the money funds and too short for core bond managers. Given the outlook for sustained Fed inactivity, this part of the curve offers solid risk-adjusted yield opportunities for separate account mandates.

The fact that the Eurozone situation is both a sovereign and a financial institution issue is directly reflected in what had been a sustained creeping up of LIBOR, as that short rate contains a banking credit component to it. More recently, however, positive news out of the Eurozone, possibly of the nature of nothing more than “kicking the can down the road” and not fundamentally solving the true problem, has caused LIBOR rates to fall and, along with them, the TED spread, or the spread between LIBOR and U.S. bill yields. This news is welcome, as it reflects a diminution of fear in the market, but we fully expect LIBOR to remain volatile in the days and months ahead.

The short end of the credit curves remains extremely flat and compressed. Like the Treasury curve, the yields of these securities have flattened even further during the past three months. All nonfinancial sectors of short-term high-grade corporate paper continue to trade in a narrow band. The financial sector, on the other hand, is showing often large-scale differentiation between certain issuers, reflecting investors’ fears of certain firms’ exposures to the Eurozone debt problems.

The liquidity requirements for money market funds that went into effect earlier last year continue to apply pressure on the short end of the curve as funds meet the 10% daily and 30% weekly minimums.

Another consequence of the liquidity buckets is a premium placed on Treasuries and discount notes, as both are eligible for the new 2a-7 liquidity buckets inside of specified maturities.

There continues to be minimal yield pickup between Treasuries and discount notes. The spread between the highest-rated commercial paper (CP) and government agencies also remains very tight.

Chart source: Bloomberg as of February 29, 2012. Past performance is no guarantee of future results.

The short-term relief in Europe—the staving off of a hard default on Greek sovereign debt and the European Central Bank’s solving the area’s banks’ possible funding problems—is being felt in a continued tightening of spreads in non-Treasury fixed-income products relative to Treasury yields, as investors, seeking yield in the ultra-low-rate environment, are again flocking to what they, and we, consider to be possibly safer investments in prudently selected corporate and asset-backed names.

Spreads of short corporate paper to like-duration Treasury yields, or the added yield commanded by the market for compensation for taking on the additional risk, fell from its end-of-January level of 142 bp to its end-of-February level of 118 bp, a 24 bp tightening, or nearly 17%. Prior to the spread widening that began in mid-2007, short corporate spreads averaged roughly 55 bp, suggesting that further spread tightening is possible in this paper. Even if we do not again see those tighter spread levels, the additional yield in the portfolio from holding this type of investment is beneficial to the portfolio, as long as individual investments are wisely chosen.

In the asset-backed securities (ABS) space, the story is similar. At the end of January, spreads of this paper to like-duration Treasury securities stood at 76 bp and fell to 67 bp by the end of February, a 9 bp or nearly 12% tightening. Longer-term averages, again before the start of spread widening associated with the then- upcoming credit crisis that followed the failure of Lehman in 2008, were roughly 55 bp, again suggesting the potential for further spread tightening. There is relatively little paper being issued in the short ABS space, so continued strong demand with little supply should lead to tighter spreads going forward, absent another credit-related shock to the system.

As volatility is a measure of risk in the marketplace, and there is a strong correlation between falling volatility and residential mortgage-backed securities (MBS) spreads. The high level of fixed-income volatility stemming from the European situation makes, in our opinion, the purchase of agency-issued MBS a risk-efficient method of possibly adding yield to a short-term fixed-income portfolio. Agency-issued MBS carries with it the creditworthiness of Fannie Mae, Freddie Mac and Ginnie Mae, an unsurpassed liquidity profile, and additional yield that, in our opinion, outstrips the uncertainty of the timing of cash flows in the paper.

Chart source: Bloomberg as of February 29, 2012. Past performance is no guarantee of future results.

SIFMA averaged 0.10% for the month of January and February. The SIFMA Index remains low due to a variety of pressures: lack of new VRDN supply, stronger concerns over Eurozone credits creating stronger demand for non-Eurozone credits, continued government stimulus and continued purchasing of tax-exempt securities by taxable fund managers, among others.

January reinvest cash created strong demand from both taxable and tax- exempt buyers. The SIFMA index should begin to cheapen as cash balances are spent down and dealers begin carrying larger VRDN inventories. SIFMA should settle in around the 0.10% to 0.16% range in March.

The 1-year municipal yield curve remains flat out to one year with 8 bp of steepness. Yields have richened in this space as a result of January reinvest cash, 1-month AAA-rated municipals were 0.03% richer at 0.12% and 1-year AAA-rated municipals were 0.05% richer at 0.20%.

Yields on 1-year AAA-rated municipals are 0.07% richer at 0.18% since January.

Yields on 2-year AAA-rated municipals are 0.16% richer at 0.26% since January.

Yields on 3-year AAA-rated municipals are 0.18% richer at 0.42% since January.

Spreads between 1- and 2-year maturities are 9 bp tighter at 8 bp since January.

Spreads between 2- and 3-year maturities are 2 bp tighter at 16 bp since January.

Issuance has gotten off to a slow start in January, averaging roughly $3.025 billion per week in January and $5.060 billion per week in February.

Issuance should start to increase going into March - The first week of March produced $8.50 billion in new issuance.

The Eurozone remains a concern - financials remain cheap to municipals in the 1- to 3-year space, but credit risk and volatility should be considered. Municipals look attractive to industrial corporate names in the 1- to 3-year space.

Headline pressures continue to be an area of concern for certain municipalities. This trend is expected to remain in place until the overall economic picture begins to brighten.

Keeping an eye on the political landscape - a lot of talk about tax reform by both parties - some favorable for municipal bonds and taxpayers - one not so favorable.

Chart source: Bloomberg as of February 29, 2012. Past performance is no guarantee of future results.

Throughout February, we continued to extend the maturities in our prime portfolios in order to lock in yield in a tightening spread environment. By month-end, most value had been compressed out of the market. For example, by late February, yields on Canadian and Australian bank investments out through 6-month maturities were not compelling. The WAM for Cash Reserves, Money Market Reserves and Global Dollar were increased in the 3- to 7-day range while the WAL for these funds were bumped 2 to 6 days longer. Given the pending Moody’s rating downgrades of European banks and Global Capital Market Intermediaries, we plan on shortening up the weighted average maturity of our rated funds during March in order to make the funds more “stress test” resilient.

Government and Treasury Funds

With a combination of more cash in the markets, Treasury and mortgage settlements, seasonal increase in bill supply and better market sentiment, the funds added positions and extended WAM while increasing yield. The WAM of Government Reserves and Treasury Reserves was extended 8 days and 6 days, while their weighted average lives were pushed out 5 days and 6 days, respectively. Government Plus was not extended due to larger-than-expected redemptions throughout the month. The funds continued to ladder 1-month through 3-month securities, as well as barbell the portfolios by purchasing Treasury and government agency obligations in the 6-month through 12-month part of the curve.

Overnight general collateral rates rose sharply from the end of December 2011 through January 2012 by 4 bp to 17 bp. As the outstanding supply of coupons 1-year or less continued to increase and the stock of bill outstandings continued to decline, coupons continued to trade at a discount to bills, with a gap of approximately 3 bp to 5 bp. The Treasury also announced bill auction size increases on the heels of the Fed announcing they will keep rates exceptionally low at least through late 2014.

Government and Treasury Funds, continued

As a result of the influx of Treasury supply, the bill market curve out to 6 months was approximately 5 bp cheaper and 1-year bills 1 bp cheaper. These were the cheapest levels since early August 2011(debt ceiling).

Municipal Funds

During the month of February, the short-term yield curve (MIG1) flattened by 2 bp. The curve had 12 bp of steepness. One-month through 6-month yields were flat at 12 bp while 1-year yields held at 24 bp. The front end of the curve remained very well bid as investors remained risk adverse due to the uncertainty surrounding the Eurozone and potential bank downgrades.

The SIFMA index averaged 0.14% for the month, up 7 bp from the previous month’s average of 0.07%. Weekly non-AMT VRDNs traded between 12 bp and 16 bp. As taxable funds tendered back their VRDNs at the beginning of the month, SIFMA increased from 8 bp to 17 bp by mid-month. As a result, daily VRDNs reset as high as 12 bp during this period. The funds’ VRDN positions continued to average between 70% and 80% of the portfolios.

Although 3-month LIBOR averaged 50 bp for the month, down 7 bp, tax-exempt CP continued to lose its attractiveness from a ratio perspective. One-, 2- and 3-month Tax-Exempt CP averaged 11 bp, 12 bp and 13 bp, respectively. However, there continued to be strong investor demand as market participants continued to pay a premium to hold high quality pure municipal names. As longer-dated CP offered no relative value, we kept our CP rolls inside of a month as we wait for higher SIMFA rates to be reflected in the CP scales.

The Funds’ WAMs averaged in the mid 30’s. Given the current outlook on interest rates, we would be comfortable with the WAMs in the low/mid 40’s. However, we continue to monitor what affect, if any, that sterilized QE would have on the municipal market.

As the yield curve continues to be almost completely flat out to the 1-year maturity tenor, we focused on shorter maturities (3- and 6-month paper) in spread sectors, mainly CP and short-maturity floating rate corporates. For those accounts that allow its use, short municipal paper offered good diversification benefits but remains hard to find (outside the VRDN market), certainly at attractive yield levels (on a tax-adjusted basis) versus its taxable counterparts. It should be noted, however, that with rates this low and spreads this tight, it is becoming more and more difficult to find short paper that provides yields greater than what could be earned in money market funds, on a fee-adjusted basis. Where longer taxable exposure was needed, we preferred higher-quality corporate paper, as short agency debt spreads have strongly compressed and marginal added yield in lower-quality names is not, in our opinion, adequate compensation for the added risk. Here, too, tax-exempt paper provides solid diversification but has richened recently versus the taxable markets.

Enhanced Cash (BofAML 6-month T-bill Index)

The kink in the shape of the yield curve out past one year in both the taxable and tax-exempt markets remains notable and provides portfolios with added yield potential and better roll-down potential. We’ve concentrated on adding paper here and doing so conservatively, adding longer paper for taxable-only accounts in the asset-backed sector and in higher-quality corporates (emphasizing hard-to-find industrial over financial paper for its lower-volatility characteristics). For portfolios allowing the crossover use of tax-exempt paper, we’ve seen the relative cheapness of the municipal paper evaporate over the past several months, but we continue to opportunistically buy in to that market on relative weakness and when paper is available. The other side of this strategy is to “barbell” the portfolios with shorter paper, in a similar fashion to what is described in the preceding section, to offset this preference for longer paper.

The taxable and tax-exempt portions of the bond markets are retaining their relatively sharp upward slope past the 1-year part of the term structure of interest rates out to the 3- and 5-year parts of the curve. We therefore have focused on taking advantage of these higher yields and these bonds’ ability to appreciate in price over the passing of time (rolling down the curve) in light of our outlook for medium-term Fed inactivity. After pulling in our maximum maturity appetite to the 2- to 2.5-year range, thinking the Fed may indeed start a tightening cycle sooner rather than later, recent macroeconomic weakness has allowed the U.S. to again go out to the 3- to 4-year part of the curve for those accounts that allow us that flexibility. As is the case in the Enhanced Cash portfolios, we are also focusing our longer-term purchasing in the Ultra Short-Term strategy in the high-quality and/or well-structured asset classes — asset-backed securities, defensive, high-quality corporate names, and, where and when we can, both taxable and tax-exempt municipal paper. Offsetting these longer-term buys was short-term paper, consistent with the two strategies described earlier. In short, we are “barbelling” longer, defensive paper and shorter paper carrying appropriate levels of risk.

The yield curve for 1-year municipals has continued to flatten. The “January Effect” has stretched into February as a lack of supply and a surplus of cash continued to apply pressure on yields. The 30-day visible new issuance supply has increased and we have seen more robust new issuance in late February and early March. The increase in supply should relieve some of the negative pressure on the yield curve, stabilizing and potentially backing up yields in March. One-year AAA-rated municipal bonds richened to a 0.18% since January, 0.07% richer. The spread between A/AAA municipals in the 1-year space tightened 10 bp since January to 0.35%. One-year AAA-rated municipals continue to be cheap at 112% of 1-year Treasuries. With a flat yield curve and expectations of rates being on hold until 2014, our strategy remains on bonds maturing in 15 to 18 months.

Enhanced Cash

Two-year AAA-rated municipal bonds richened to a 0.33% in January, 0.03% richer. The spread between A/AAA municipals in the 2-year space tightened 12 bp since January to 0.44%. Two-year AAA-rated municipals currently trading at 87% of 2-year Treasuries. The 2-year area of the curve has been very competitive as short-term investors looked for a little more yield opportunity, outside of Money Market range. Two-year maturities of newly issued deals have been heavily oversubscribed. Again, as new issuance increases, demand should subside and yields bounce back off the January and February lows. With expectations of rates being on hold until 2014, our strategy remains on bonds maturing in 1.5 to 2 years.

Ultra Short Term

Three-year AAA-rated municipal bonds richened to a 0.42% since January, 0.18% richer. The spread between A/AAA municipals in the 3-year space tightened 12 bp since January to 0.55%. The spread between 2-year and 3-year AAA-rated municipals tightened 2 bp since January to 0.16%. Three-year AAA-rated municipals are currently trading at 100% of 3-year Treasuries. Yields have dropped due to a high level of reinvestment cash from January maturities and meager new issue supply. Yields should back up going into March as cash balances are reinvested and the supply calendar improves. Be patient with reinvesting cash - the lower yields and tightening of credit spreads that January produced can be quickly reversed. Corporate bonds and select ABS names may be a suitable alternative to municipals. With expectations of rates being on hold until 2014, our strategy remains on bonds maturing in 2.5 to 3 years.

Non-Farm Payroll Change: Represents total number of paid U.S. workers of any business, excluding government employees, private household employees, farmers, and employees of nonprofits that provide assistance to individuals.

PPI (Producer Price Index): Measures prices received by producers at the first commercial sale.

LIBOR (London Interbank Offered Rate): The rate of interest at which banks borrow funds, in marketable sizes, from other banks in the London interbank market.

TED Spread: The price difference between 3-month futures contracts for U.S. Treasuries and 3-month contracts for Eurodollars having identical expiration months. The TED spread can be used as an indicator of credit risk.

AAA GO Curve: The curve is populated with U.S. municipal general obligations with an average rating of AAA from Moody’s and S&P.

AAA Reverse Curve: The curve is populated with U.S. municipal bonds backed by general purpose revenues with an average rating of AAA by Moody’s and S&P.

Please read and consider the investment objectives, risks, charges and expenses for any fund carefully before investing. For a prospectus, which contains this and other important information about the fund, contact your BofA Global Capital Management representative or financial advisor or go to www.bofacapital.com.

An investment in money market mutual funds is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. or any of its affiliates or by the Federal Deposit Insurance Corporation or any other government agency. Although money market mutual funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market mutual funds.

Please see the prospectuses for a complete discussion of the risks of investing in money market mutual funds.

The credit quality ratings represent those of Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Corporation (S&P) as of the date of publication and are subject to change. For information regarding the methodology used to calculate the ratings, please visit Moody’s at www.moodys.com or S&P at www.standardandpoors.com.

Interest income from certain tax-exempt bonds may be subject to certain state and local taxes and, if applicable, the alternative minimum tax. Any capital gains distributed are taxable to the investor.

Any guarantee by the U.S. government, its agencies or instrumentalities applies only to the payment of principal and interest on the guaranteed security and does not guarantee the yield or value of that security.

Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts will come to pass. The views and opinions expressed are those of the portfolio managers and analysts of the affiliated advisors of BofA Global Capital Management, are subject to change without notice at any time, may not come to pass and may differ from views expressed by other BofA Global Capital Management associates or other divisions of Bank of America. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security or sector.

This information does not constitute investment advice and is issued without regard to specific investment objectives or the financial situation of any particular recipient.